MSFT Stock: Could Microsoft CEO Succession Be a Killer?

by Tom Taulli | January 21, 2014 2:50 pm

MSFT Stock: Could Microsoft CEO Succession Be a Killer?

When Microsoft (MSFT[1]) announces its fiscal second quarter earnings on Thursday (after the bell), analysts will certainly want to get some details on who will replace Microsoft CEO Steve Ballmer. The answer to this will likely outweigh the earnings news in terms of the impact on MSFT stock. Yet if history is any guide, the long-term impact could be challenging.

[2]Unfortunately, since Ballmer announced his departure in August, the Microsoft CEO search has been messy. It really does look as if the company was unprepared for this, which definitely shows a lack of strategic thinking. Even Apple’s (AAPL[3]) Steve Jobs — who had a long history of being stubborn and hard-headed — had a succession plan in place and the process was fairly smooth.

For the most part, Ballmer is now a “lame duck,” waiting around for a new leader. And this likely means that the entire organization is also in limbo. Might as well wait before making big decisions, right?

But the incoming Microsoft CEO will face some tough challenges. While it’s true that Microsoft has made strides with cloud computing — as seen with offerings like Office 365 — the company is still MIA with mobile. It looks like that the only idea Ballmer had to fix things was to buy Nokia (NOK[4]), a company that lost its dominant position to Apple, Samsung and Google (GOOG[5]). How is that supposed to drive MSFT stock higher?

Losing mobile would be a huge problem for MSFT stock for the long term. The fact remains that the company gets much of its revenues from PC-based products like Windows and Office.

That’s why so much is riding on the next Microsoft CEO. Yet, if history is any indication, it is never easy for a new CEO to navigate major shifts in technologies. It is usually even worse when the person must replace a founder. Just take a look at the example of Borland. Back in the 1980s, the company’s pioneering founder and CEO, Philippe Kahn, built a software empire that rivaled Microsoft. But after he got the boot, there was mostly drama and disarray. During a two-year period in the mid-1990s, the company hired seven CEOs!

Oh, and yes, it’s pretty typical for tech companies to go through a variety of CEOs before finding the right fit. This happened with IBM (IBM[6]) during the early 1990s. It was also the situation with Apple, which had some awful CEOs before re-hiring Jobs.

But with the Microsoft CEO search, the prospects do look grim. After all, the short list doesn’t have any game-changers. Keep in mind that the person at the top of the list is Stephen Elop, who is the CEO of Nokia.

That’s how MSFT expects to win mobile? It really does seem laughable.

Interestingly enough, the big issue could be that Bill Gates is still on the board of MSFT and continues to meddle. The result is it has made it tough to get the interest of top-notch contenders. But of course, if the company wants to win with mobile, it needs a great leader — and unfortunately, it doesn’t look like anyone is lining up to be the next Microsoft CEO.

Don’t expect that to inspire confidence in MSFT stock any time soon.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7]. He is also the author of High-Profit IPO Strategies[8], All About Commodities[9] and All About Short Selling[10]. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.